Cabinet Issues Licensing Regulation

On 28 August 2019, Cabinet Decree No. 25 of 2019 (the “Decree”)[1] was published in the Official Gazette, detailing the regulations pertaining to one particular case of public contracts that has been stipulated in the new Public Contracts Law No. 182 of 2018 (the “Law”),[2] namely the direct contracting of real estate for public interest. In particular, the Decree, which went into effect on 29 August 2019, puts forth the prerequisites and regulations for licensing administrative bodies to directly contract real estate (either for sale, lease, or usufruct/exploitation licensing) in cases of necessity to achieve public interest.

Background

In October 2018, a new framework for regulating contracts concluded by public entities was issued by virtue of Law No. 182 of 2018, replacing the previous and outdated Bids and Tenders Law No. 89 of 1998. Attempting to create a comprehensive legal regime for public procurement, the Law regulates with considerable detail several types of public contracts, projects, and assets and provides specific rules for the sale, purchase, or procurement of services in relation thereto. In particular, the Law provides more discretionary powers to administrative bodies down to the level of contracting departments and expands the authority of government agencies to contract directly in several cases. As per the Law, an ‘administrative body’ is any public body, entity, or authority, including entities operating within the state’s general budget, administrative apparatus units with separate special budgets (such as ministries), municipalities, service and economic public authorities, and funds (except for social welfare funds). The main methods of contracting for public works stipulated under the Law are public tender; public negotiation (mumarsa); a limited, two-stage, or local tender; limited negotiation; a public, limited, or local auction; and direct contracting. With regards to public procurement of real estate in specific, when the administrative body is the purchaser or lessee, the general rule is to use a public tender, but an exception could be made in emergency situations and public interest concerns wherein direct contracting is allowed. On the other hand, when the administrative body is the seller, lessor, or assignor of usufruct rights, the general rule is to use a public auction; exceptions could be made in emergency situations or for real property up to EGP 2 million if not sold through a public auction, wherein direct contracting is allowed. Yet in its Article (80), the Law also provides for the possibility, upon the Cabinet’s approval, of the disposal of real estate in cases of necessity (for social or economic considerations required by public interest) via direct contracting (to sell, lease, or license the real estate’s use or exploitation); accordingly, last month’s Decree was issued with the rules and regulations pertaining to this particular situation.

Cabinet Decree No. 25 of 2019

The new Decree details the overall process of licensing administrative bodies to directly contract real estate in cases of necessary public interest, which could be summed up as follows: To apply for a license to directly contract, a few prerequisites must be fulfilled at first, including that (1) there is a necessity requiring the disposal of the real estate through direct contracting to achieve a social or economic public interest; (2) the party to be entered into transaction with has technical and financial competence and a good reputation; and (3) there are justifications for the licensing application. A valuation committee is then formed via a decision from the competent authority (i.e., the competent minister or governor, depending on the case). This committee is to include experts from the administrative body applying for the license or from other entities subject to the Law, and it is tasked with the valuation of the disposal price of the real estate (i.e., its price, rental value, or usufruct/exploitation value) as well as the proposal of the method and timeframe of payment. The committee’s report on the matter is to also include the objective criteria followed in such determination. In case of technologically advanced projects to which land will be allocated for establishment, the committee could, with the approval of the competent authority, refer to scientific or research centres or public entities with particular expertise and specializations in the preparation of the necessary detailed studies. Following this, the competent minister or governor at the administrative body applying for the license must submit to the Minister of Finance a list of information and documents, among which are the justifications for application and proof of necessity “as per objective standards” along with a clarification of the projected economic or social outcomes; a copy of the feasibility study of the project to be established on the real estate in question; a clarification of the kind of transaction to be undertaken (i.e., sale, or lease, or usufruct/exploitation licensing) and the period of the contract (for the latter two cases of lease and usufruct/exploitation licensing); the proposed disposal price and payment method; and various information about the real estate itself. The Supreme Committee of Valuation at the General Authority for Government Services (the “Supreme Valuation Committee”) then undertakes the verification of the proposed disposal price and presents a technical advisory report on the matter (containing the standards it followed and its recommendations) to the Minister of Finance. The verification is to be done through the review of the submitted documentation and field inspections; accordingly, the administrative body applying for the license must submit to the Supreme Valuation Committee any requested documents as well as take all necessary measures to facilitate the Committee’s accessibility to the field/site under inspection. It is also worth noting that the Supreme Valuation Committee could request that the administrative body applying for the license undertake a re-examination of the proposed value of the disposal price in case of a huge discrepancy between the two committees’ valuation. Finally, the Minister of Finance is to refer the matter, along with the Supreme Valuation Committee’s review, to the Cabinet to consider its approval.   [1] Cabinet Decree No. 25/2019 on the regulations for directly contracting real estate for sale, lease, or usufruct/exploitation licensing, Official Gazette, Issue No. 34 (bis) (d), 28 August 2019. [2] Law No. 182/2018 on the regulation of contracts that are concluded by public entities, Official Gazette, Issue 39 (bis) (d), 3 October 2018.